Are we creating a positive looking industry for the public?

How much is the public prepared to pay for advice? And what is the public’s perception on how advisers are remunerated? While there is a lot of concern regarding the outcome of the Financial Services Board’s investigation into the Retail Distribution Review, how often have we stood back to look at the industry from a client’s perspective?

Some may argue that how the public perceives the industry is not their concern. However, are we really putting clients at the centre of our business if we adopt this viewpoint? If we know what the public’s concerns about the industry are, we can make significant strides into improving the industry.

Being penny wise and pound foolish

US based research company LIMRA has found that sixty percent of the US population is more likely to save towards retirement when there is an adviser involved. A significant positive is that contributions increase by thirty percent over a defined period of time when clients are engaging with advisers. This is a clear indication that behaviours will change as confidence levels increase.

While the results presented by LIMRA are very US centric, the research was conducted in over seventy countries globally. This has been very little bearing on the South African market, but it may be worthwhile to note these industry trends as they may well be the same in South Africa.

“Advisers play an important role in the industry as they are the link between the insurer and the policyholder. It is the adviser’s duty to explain the products to their clients in a clear and understandable way. The adviser’s ability to do this increases their trust level with the client,” says CEO Robert Kerzner.

Here is the million dollar question: how much is the public prepared to pay for advice? Kerzner says that this is the scary part of the research. In the US, only one in five people are prepared to pay hundred dollars for advice. In the UK, members of the public are only prepared to pay eighty dollars per hour for advice. He adds that a study by Deloitte points out that the public is completely against paying commission.

This seems very little to pay for invaluable advice. It is tempting to try and convert the amounts that people are willing to pay in the US and UK and apply them to South Africa, but if you are living in the country, you have to assume that a hundred dollar is the same as a hundred rand which paints a very poor picture of the industry. One has to ask if the public is not being penny wise but pound foolish. The public is quick to admit that the advice given by advisers is invaluable, but they are not prepared to pay for this advice.

Is risk profiling the reason for this standoff?

There could be a number of reasons for the fact that the public is not prepared to pay reasonable amounts of money for advice. We cannot rule out that the fact that the public is just not prepared to pay well for advice as a matter of principle, but we also cannot rule out the fact that there may be an aspect within the industry which is causing a bad enough experience to put people off not paying for advice.

Risk profiling is currently used as a corner stone in the industry which is used as a departure point for all life policies. Speaking at the Financial Planning Institute (FPI) Conference on 25 June, Old Mutual CEO Andrew Bradley says that while risk profiling has served the industry well, he argues that it is becoming irrelevant in the industry.

“I have never met a client that praises risk profiling. Which of your clients shake your hand and says that risk profiling is responsible for the financial security they enjoy today? In fact, the majority of clients will blame risk profiling for the financial position that they find themselves in today,” says Bradley. Does this not point to the fact that advisers are not having meaningful conversations with their clients?

Anton Swanepoel (CFP), one of the leading trainers in the financial services industry, says that risk profiling is crucial for a company and argues that risk profiling is not a problem in the industry, but the way in which people approach risk profiling is a problem. “How can we have a meaningful conversation with a client if we cannot quantify the risk? The customer needs to be at the centre of all the discussions,” said Swanepoel.

Take the time to show that you care

Maintaining a good relationship is only one piece of the puzzle. Advisers need to genuinely care about their clients and the issues they are going through in their life in order to recommend a product which suits their needs.

Helen Nicholson, CEO of The Networking Company, pointed out that the power of connection increases your client’s level of respect that they have for you and with respect comes trust. “Bill Clinton, one of the most popular US Presidents, was on a visit to Oklahoma and walked up to a lady he had met five years before for only a couple of minutes. He knew her name, her husband’s name and her kid’s names. The fact that he was the President did not touch the women. But the fact that he cared about her family did,” said Nicholson. Speaking to the media after the death of Nelson Mandela, Clinton relayed a similar story how Mandela refused to talk business until he knew how Clinton’s family was.

The classical view of an adviser being part of the family rather than a person you see once a year needs to be more applicable now than it was 30 years ago. In the digital age, people’s lives change at a far more rapid pace than they did in the past. If an adviser is not taking the time to care about their client, why then must the client be expected to pay more than they feel comfortable for advice? People do not care how much you know until they know how much you care. Perhaps the problem is not risk profiling, but the fact that advisers have lost that personal connection with their clients? Addressing the media at a compliance conference, Patrick Bracher, Director at Norton Rose Fulbright, said that it would be hard to ban commissions in the financial services industry as people will be prepared to pay for it if there is money in the bank. This will only occur if the client trusts the adviser. Trust comes with respect and respect comes with a personal connection.

Editor’s Thoughts:
The way we treat clients embraces the principles set out in the FSB’s Treating Customers Fairly document. Perhaps we can use TCF as a profit generator as opposed to being apprehensive about it? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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